US economy showing signs of improvement

Shobhana Chandra

RETAIL sales in the US probably rose in December as Americans wrapped up their holiday shopping and car dealers closed out the best two months since 2008, economists said before a report this week.

The 0.2 per cent increase would follow a 0.3 per cent gain in November, according to the median forecast of 72 economists surveyed by Bloomberg before the US Commerce Department's figures on Tuesday.

Other reports are projected to show home building picked up, manufacturing expanded and the cost of living remained contained.

The housing-market rebound, higher share prices and an improving job market are helping sustain consumer spending, which accounts for about 70 per cent of the economy. At the same time, households may be hard pressed to accelerate purchases as higher payroll taxes shrink take-home pay.

''Consumers have proven to be fairly resilient, though a little cautious,'' the chief economist at Action Economics, Mike Englund, said. ''People will be stunned at how small their pay cheques are when they get them this month.'' Still, ''the economy will muddle through''.

The fiscal pact passed by the US Congress on January 1 made permanent the George W. Bush-era income tax cuts for 99 per cent of Americans. The agreement also let the payroll tax used to pay for social security benefits return to the 2010 level of 6.2 per cent, from 4.2 per cent. That reduces the pay cheque by $US41.67 ($A39.53) for someone who earns $US50,000 and gets paid twice a month.

Better job and wage prospects will cushion some of the hit. Payrolls rose by 155,000 workers last month after a 161,000 advance in November.